Wednesday March 20, 2013
12:15PM - 1:45PM
Harvey C. Fruehauf Professor of Business Administration
Professor of Strategy
University of Michigan
Firm scope and the direction of technological change
We examine the direction of firms research efforts as they respond to the shock of a sharp increase in the price of a key input. Directionally, firms can respond to this shock with paradigm-changing investments that develop technologies to use substitute inputs or paradigm-deepening investments that develop technologies to improve the utilization efficiency of the existing input. We develop a framework that suggests that firms emphasis on paradigm-changing versus paradigm deepening investments depends on the degree of relatedness across their businesses. We test our hypotheses examining the responses of large manufacturing firms in the United States to the oil shock of the early 1980s. We identify the implications of these findings for technological evolution and diversification literatures.